THIRUVANANTHAPURAM: Kerala Chief Minister Pinarayi Vijayan has appealed to Union Finance Minister Nirmala Sitharaman to release the Centre’s share of Rs817.80 crore in Viability Gap Funding (VGF) for the Vizhinjam seaport project without imposing the repayment condition recently stipulated.
In his letter, Vijayan strongly criticized the requirement set by the Empowered Committee under the Department of Economic Affairs, which mandates Kerala to repay the VGF through a Net Present Value (NPV) arrangement via revenue sharing.
According to Vijayan, this condition could lead to a substantial long-term financial burden, resulting in a loss of Rs10,000 to Rs12,000 crore to the state exchequer over time.
The VGF repayment in NPV terms means that Kerala would be required to repay the funding based on discounted future cash flows, making it a costly financial obligation over time. Vijayan highlighted that Kerala has committed a substantial investment of Rs5,595 crore out of the total project cost of Rs8,867 crore, which has put a strain on the state’s limited resources.
Kerala’s fiscal sacrifice
He noted that as a smaller state with constrained financial capacity, Kerala’s investment represents a significant fiscal sacrifice and adds to the state’s financial pressures.
Vijayan argued that VGF was established as a non-repayable grant mechanism intended to support public-private partnership (PPP) projects that are viable from an economic standpoint but require financial assistance to be feasible.
The VGF structure, he emphasised, is usually non-repayable and intended as a one-time grant during the construction phase, easing the financial burden on project proponents. Therefore, the recent stipulation, he asserted, “defies the very rationale” of VGF, which was created to encourage PPPs without the expectation of repayment from state governments.
Outer Harbor project
Drawing comparisons to similar projects, Vijayan pointed out that no such repayment condition was imposed on the Outer Harbor project at VOC Tuticorin Port, which has been structured similarly to Vizhinjam. He requested that the Vizhinjam seaport project receive equivalent treatment.
Furthermore, Vijayan emphasised the economic potential of the Vizhinjam seaport, estimating that it could generate annual customs revenue of around Rs10,000 crore, with nearly Rs6,000 crore benefiting the Centre.
Given this potential, he stressed that the Centre’s support in VGF, without the repayment obligation, would allow Kerala to retain the financial benefits of this crucial infrastructure project.
In conclusion, Vijayan urged the Finance Minister to release the Centre’s share of VGF for Vizhinjam without the repayment condition to avoid an estimated financial impact of Rs10,000 to Rs12,000 crore on the state’s budget.
He sought equitable treatment for the project, which, he argued, would ultimately contribute significantly to both state and central revenues.
